It is hard to get excited after looking at Apollo Food Holdings Berhad's (KLSE:APOLLO) recent performance, when its stock has declined 3.6% over the past three months. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Apollo Food Holdings Berhad's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for Apollo Food Holdings Berhad
How Do You Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Apollo Food Holdings Berhad is:
12% = RM29m ÷ RM232m (Based on the trailing twelve months to January 2023).
The 'return' refers to a company's earnings over the last year. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.12 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Apollo Food Holdings Berhad's Earnings Growth And 12% ROE
To start with, Apollo Food Holdings Berhad's ROE looks acceptable. Especially when compared to the industry average of 10% the company's ROE looks pretty impressive. This certainly adds some context to Apollo Food Holdings Berhad's decent 7.5% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that Apollo Food Holdings Berhad's reported growth was lower than the industry growth of 18% in the same period, which is not something we like to see.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Apollo Food Holdings Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.